- Triplet 12 - This London Economic Summit: An Evaluation

Triplet 12

This London Economic Summit: An Evaluation

By Shiva Kant Jha

April 17, 2009

GORDON Brown, the British Prime Minister, declared at the end of the April 2, 2009 G-20 Summit that that was “the day the world came together to fight back against the global recession”. But  the outcome of the Summit does not seem to be so inspiring. It was convened to revive the paralyzed global economy, and to take remedial measures to rid the world of the systemic ills of the present-day financial system. It has made some good strides, but a lot more must be done soon to achieve the objectives.

Reflecting on the London Economic Conference, convened in 1933, to study the etiology of the financial crisis held  to arrest the global depression, to  revive and reinvigorate international trade, and to bring about stability in international currencies, and to prescribe appropriate remedy to save the world from such a scourge ever in future, H.G. Wells made a pregnant comment:

“The London Conference rose to no such dramatic climax as the signing of the Peace Treaty at Versailles. It rose to nothing. It began at its highest point and steadily declined. If Versailles produced a monster, London produced nothing at all. Never did so valiant a beginning peter out so completely.”

Variating on the above phraseology I would reflect on this London Conference convened on April 2, 2009. This Summit  rose to no such dramatic climax as the Washington Consensus, or later the signing of the Uruguay Round Final Act.  It began with high expectations but seems to have lost its way in the smog. The valiant Knights of the Neo-liberal economic paradigm left no stone unturned to drive the summiteers’ deliberations to promote their agenda. I pray to God something really good comes out of this collective endeavour of the great leaders.

It is in itself good that the leaders of the world’s twenty major economies have showed their earnestness to find ways and means to lift the world from a morbid economic morass. But in their zest some political leaders showed their assumptions and assertions where prudent statesmanship is required. None showed the intellectual humility of the sort Montagu Norman, who was the Governor of the Bank of England, and had closely watched the outcome of the 1933 Conference, had shown when he  stated with a remarkable insight at a public function:

“The economic problem is too great for me. The difficulties are so vast, so novel, precedents so lacking that I approach the whole subject in ignorance and humility. It is too great for me.” 

The task before the world leaders was baffling, and required patience, imagination, understanding and broad vision taking a long view of future and a broad view of collective social responsibilities. The problems required political sagacity of the highest order. It seems they were led by the economists whose adroitness is most often in their assertions and assumptions. The economists can at best provide us with tools, they cannot be our decision-makers.  Rightly did Thomas Balogh say: “The history of economic theory is a tale of evasions of reality.”( The Irrelevance of Conventional Economics p. 3). It is easy to assume away reality for  short term benefits to their clients. And this was underscored by Galbraith who aptly said: “…as between grave ultimate disaster and conserving reforms that might avoid it, the former is frequently preferred.” The present-day economic crisis must be seen in its historical perspective. Capitalism produced economics, and its oversold offspring-discipline we call Business Management. The Economic Globalization is a contrivance begetting the present-day economic architecture of the world in which there is a ruthless subjugation of the political realm to the economic realm. There is now a clear mismatch between the national, political and the global economic structure. Geza Feketeluty has brought out this reality thus (2001 Britannica Book of the Year. 191):

 “Clearly, the reality of globalization has outstripped the ability of the world population to understand its implications and the ability of governments to cope with its consequences. At the same time, the ceding of economic power to global actors and international institutions has outstripped the development of appropriate global political structures.”

Pundit Nehru, after examining what went wrong with the 1933 Conference, perceptively said: “The fault did not lie in Nature, but in man and the system he had created”. In economics, nay in life itself, the law of karma works supreme: we reap the consequences of our deeds, we never harvest miracles.

To evaluate the achievements of this London Conference, one must reflect on the expectations that we had, and the achievements which seem likely to emerge. For obvious reasons the “Summit on Financial Markets and the World Economy”, held in Nov. 2008, had at its heart the same philosophy which had worked to produce the crisis it intended to solve.  Its dramatis personae were the same who had produced the neo-liberal economic melodrama. High expectations were generated from this London Economic Conference mainly because of the Obama factor. He wisely expressed his contrition about his country’s role in starting the meltdown. The U.S.A. has lost something of its economic edge in the world, but it has acquired a moral stature, and its words are now entitled to greater credibility. Going by their words, the leaders of this  G-20 Summit  intended to set up a sound system of the global financial architecture characterized by transparency and accountability; they aimed to find and forge ways to  ‘reduce the severity of the global recession and speed up the economic recovery’;  they promised to take steps to strip the tax havens and offshore centres of their secrecy so that the looters and tax-evaders can be deterred effectively, and also  to work to provide more effective stimuli to the system to “avoid a protracted downturn, guard against deflation, strengthen the financial sector, mitigate against a withdrawal of bank lending and to steer clear of protectionism”. It was hoped that if such steps are honestly taken the present global gloom would melt under better conditions for trade and commerce for the welfare of the people. But it is too early to evaluate the efficacy of what turned out at the Summit. But some comments are worthwhile:

  1. The deliberations and its communiqué show that the political leaders were under the spell of the monetarists. Their chorus  to transfuse massive amount of money, in various ways and forms, tends to forget that this transfusion is not in itself enough. What matters most is what is done with these hefty stimuli given after  scooping resources meant for public welfare.  Similar strategy adopted in the early thirties of the last century turned futile. Pundit Nehru very perceptively said:

“This lack of money does not mean that money has disappeared from the world. It means that the distribution of money among the world’s people has changed and is continually changing-that is, there is inequality in the distribution of wealth.’

The real question is: where does the money go. Very often it is Greed that guides the destination of such money. Greed has led to spawn a lot of dark areas, euphemistically called tax havens and offshore financial centres, where money is amassed causing wrongful gains to the crooks, and wrongful loss to the world’s peoples. This game of swindling has grown sinister as the experts have discovered now dark nooks even in the Cyberspace!

(2) The IMF has been financially equipped to play an aggressive dynamic role in the global economy. Heavy fund have been put at its disposal with a lot of expectations. But nothing has been done to make it responsive to the needs of our days. Joseph Stiglitz   said: “The U.S. Treasury had during the early 1990s heralded the global triumph of capitalism. It effectively implemented the Washington Consensus policies …”.   The IMF is a non-transparent organization with an obvious and shocking ‘democratic deficit’. The Bretton Woods institutions  (the World Bank, the IMF, and GATT) were created in 1944 to provide a stable infrastructure to  the neo-liberal capitalism under the U.S. leadership. They were designed, in effect, by the neo-capitalists to usurp the duties of the U.N.’s  Economic and Social Council. After a careful examination of the IMF’s role Stiglitz has well said: “I believe, that it has failed in its mission, that the failures are not just accidental but the consequences of how it has understood its mission”. It is time to shun the market fundamentalism in which the IMF, World Bank and the WTO believe. The G-20 Summit which expects a lot from the IMF remained impervious to its flaws. How can one be sure that the IMF would give a better account of itself?

(3)  Plea of the Summit that  protectionism be avoided cannot be taken as an unqualified aphorism. It is true that the world trade is  contracting alarmingly fast. Protectionism depends on what sort of government we have and what sort of market we allow to flourish. The April 2009 London Summit reiterated the pledges against protectionism which the  G-20 leaders had taken last year. This issue cannot be solved on assumptions and assertions. Market provides a financial matrix, and the government is the political regulator to drive socio-economic engineering to achieve constitutionally accepted objectives of a political society. This is the wisdom which we gain from studying the responses to protectionism made by the governments in the various phases of history. 

(4) The deliberations in the said Summit, to state in brief,  promote the WTO agenda. On this point its pursuits are similar to those of the immediately preceding G-20 meeting. This Summit pleaded  to ‘revitalize the moribund "Doha Round" of talks on world trade liberalization’. But the relevance of their  logic is not clear. The WTO must take some responsibility for the present economic mess. One wonders how the success of the Doha Round can bring about  solutions to the problems we face. Hence, a re-thinking on the whole issue is called for.

(5) A lot was said in favour of transparency, and for the need  to subject the tax havens and offshore centres to the sunshine. The concern of the leaders is understandable as the governments need resources to respond effectively to the crisis. But the steps, which the Summit contemplates, are not sufficient. This aspect of the matter would be developed in the next leaf of this Triplet.


Tax havens: Let the Sun shine

THE group G-20 recognized the damage to the public revenue through tax havens and offshore centres, and decided to crack down on tax havens and to impose sanctions on the derelict centres. But the wise efforts may need a resolution to respond to the following challenging assertions often made by the looters and their participis criminis:

    1. The idea of State Sovereignty provides in the view of such dark centres a justification for crafting their polity as they deem proper in their interest. The collective global opinion shall have to fight a lot for the doctrine of Good Neighbourliness now recognized under modern international law. Besides, it is time to recognize that the traditional view of Sovereignty has yielded place to global co-operation and collaboration, global solidarity and dependence.

    2. The tax havens and the offshore centres have grown in the recent years because many hegemonic sates themselves needed them to promote the vested interests of those for whose benefit their governments seem to function as the pliant instruments.

    3. The subjugation of the political realm to the economic realm, which is a phenomenon caused by the rule of market under the present Economic Globalization, has a host of sinister effects in our socio-economic spheres. The neo-liberal capitalists have cultivated such centres, and would do everything to frustrate whatever attempts are made to render such centres transparent.

           The OECD identified the following features of a tax-haven:

              a)  no or nominal effective tax rates;
              b) lack of effective exchange of information;
              c) lack of transparency;
              d) absence of a requirement of substantial activities

But the most important feature of such centres is lack of transparency. It is commonly shared concern that a lot of money is being generated by most unscrupulous methods: through bribery, receipt of kick-backs, drug-trafficking, insider trading, embezzlement, computer fraud, under invoicing-over invoicing, and other tainted activities spawning scams having deep lethal consequences for the welfare of common people. Billy Steel has aptly commented that it is ‘the crime of the 90s’. He says:

 “Money laundering is the sleight of hand…a magic trick of wealth creation…the lifeblood of drug dealers, fraudsters, smugglers, arms dealers, terrorists, and tax-evaders. It is also the world’s third largest business..”

But those who earn these ways try first to park them in places where the risk of detection, seizure, and confiscation is either non-existent or is minimal. Then they devise ways to disguise their criminal proceeds of their illegal origin. Somehow the predicate crimes must be concealed. The tax havens are considered the safe places to park such tainted wealth. Through companies floated in tax havens, ill-gotten money can be effectively laundered and brought into the normal economic channels. Many of the tax havens spread red carpet to welcome them. They ensure legal systems under which such pursuits are carried on without any risk of being subjected to scrutiny. The process is intensely shrouded in smog and darkness. First, the ill-gotten wealth, generated inside or outside a country, is amassed and placed somewhere in the dark areas on the planet. Then the tainted wealth is layered in various ways from one country to another country, mostly tax havens with a studied strategy to cover all trails. This process, called “layering”, is dexterously done through the countries, which assure secrecy. Then comes the last stage in this craft of laundering: the stage of integration whereby the ill-gotten wealth, after rotation through an opaque system, is integrated in the channels of wealth creation of a recognized and respected economy. This whole unwholesome process does not attract serious attention because apparently, for many, it is a ‘victimless crime’.

It is seen that transparency is disliked by the executive, international institutions (like the IMF, World Bank, and the WTO), and the vested interests of ever waxing corporate imperium and their lobbyists. Some of its sinister effects are:

        (i)  An opaque system always frustrates fundamental rights, and always dilutes the authority of the courts, which have the constitutional duties to protect them;

       (ii) An opaque system does not help the formation of well-informed public opinion, which is the prime essential for the working of a democratic government;

      (iii)  If a system is opaque, the political and international institutions do not work under public gaze; hence, are not accountable to people;

      (iv) A government which fosters an opaque system does no good to itself as it easily, and for evident reasons, becomes target of criticism for lack of probity and integrity;

       (v)  Secrecy works to the detriment of a democratic society. Stiglitz aptly puts it thus: ‘There can be democratic accountability only if those to whom these public institutions are supposed to be accountable are well informed about what they are doing—including what choices they confronted and how those decisions were made”.

It is good to resolve to subject  such centres to a searchlight. But how is this objective to be achieved. What transpired at the Summit does not generate much  hope.  First, this great non-political issue developed geo-political dimensions on  which conflicting views were held by France, Germany and China. Second, the listing of tax havens by the OECD, and selection thereof  for naming and shaming by the Summit,  are unfair.  Many  other equally sinister centres have been left out on account of the political pressure of some of the assertive leaders at the Summit. A decision which makes grossly unfair discrimination is not likely to succed in the long run Third, we cannot forget how the government functions these days. In the U.S.A. the political institutions have by and large promoted the vested interest of high finance.  We hope things would undergo a change under Obama. Fourth, no institution was conceived and set up for effecting transparency. This task cannot be done by the institutions which have themselves facilitated the emergence and growth of such centres hitherto. Fifth, the political leaders at the Summit thought that mere agreement  inter se states to exchange information is enough to be deemed respectable. No body thought of why Keyman Islands behaved no better despite its agreement to exchange information with the U.SA. And the Indo-Mauritius Double Taxation Convention provided for an exchange  of information, yet  it is a matter in the public domain that neither the Income-tax Department, nor the CAG, nor the JPC could obtain information pertaining to the misuse  of the said Convention. Mere agreements to exchange information is not enough unless there is a strong political will to compel derelict jurisdictons to transparency. It seems the appropriate means to do so would be to set up    International Economic Surveillance Authority, and International Tax Authority under the U.N. system.


Crucifixion of capitalism and its resurrection

A very revealing assessment of the outcome of this April 2009 G-20 Summit was made by the  cartoonist Plantu in Le Monde. It portrayed a banker dragging a crucifix with a dollar impaled thereon bearing a caption: “The death of Anglo-Saxon capitalism?" The dragger answers: "I don't give a damn: I'll resurrect it at Easter." We all know the popular aphorism: “He who has the gold rules”.

The cartoon calls to mind a host of ideas of timely relevance. Is it fair for the French or German critics to grill England and America for the economic mess which tortures us all around. It is not difficult to see that the real victor of the World War II was only the United States of America. The European powers turned subservient to the USA as they needed its help for their survival. But coeval with this phenomenon was the emergence of the corporate imperium in the USA which worked through studied strategy and stratagem in crafting the world dominance of corporation. This got its great success in the Washington Consensus, and then in the deliberations culminating in the Uruguay Round Final Act.  The neo-liberal economic paradigm had received assent from many of the countries which have grown so critical of it after the economic melt-down.  It is true that Ronald Reagan of the U.S.A.  and Margaret Thatcher of the U.K. showed uncritical messianic zeal to implement the neo-liberal economic agenda, but others on the Continent become parties to such pursuits through their omissions and commissions, overt or covert. Hence it is imprudent to apportion blame on the U.S.A. alone. What is needed now is a collaborative endeavour of the powers to mend the ills which have overtaken us.   Neo-liberal capitalism in the present form is surely a collective sin: its remedies lie in honest collective efforts. It was remarkable that Obama showed humility by acknowledging the faults to which the U.S.A. was party, and by making it clear that his country is not going to arrogate a role of the globe’s financial decider. No more unilateralism.

But the dig on the neo-liberal protocol of this extractive capitalism is justified under the present circumstances. The ‘Cloud Minders’ must become the denizens of our world. The Cloud Minders" is the episode 76  of a popular science fiction television series Star Trek, which was broadcast on February 28, 1969.  Spock said  in the “The Cloud Minders”:

“The troubled planet is a place of the most violent contrasts. Those that receive the rewards are totally separated from those who shoulder the burdens. It is not wise leadership.”

Korten reflects on the imagery of this Star Trek episode: “How like our own  world it is,…..”. Volumes would not say so much so powerfully as these 7 words in a short exclamatory sentence. Let not the world be under the hegemony of those who wax, to quote from the Bhagavad-Gita: 

Bound by a hundred ties of hope,
Given over to lust and wrath,
They strive to gain by unjust means
Wealth for sensual enjoyment. - Links on Shivakantjha - Links on Shivakantjha

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